SEC Files Accounting Fraud Charges Against Two Former Officers of PurchasePro.com, Inc.

On September 23, 2003, the Commission filed accounting fraud charges in the United States District Court for the Eastern District of Virginia against Jeffrey R. Anderson and Scott H. Miller, both of whom are former officers of PurchasePro.com, Inc., a Las Vegas-based internet company now known as Pro-After, Inc. Both Anderson and Miller settled the charges without admitting or denying the Commission's allegations.

The Commission's complaint against Anderson alleges that from October 2000 through April 2001, while he was PurchasePro's Senior Vice President of Sales and Strategic Development, Anderson knowingly or recklessly participated in a series of acts and transactions designed to inflate PurchasePro's revenues in contravention of generally accepted accounting principles ("GAAP"). In particular, the complaint alleges, Anderson negotiated or otherwise had reason to know about side agreements with several customers that induced them to buy marketplace licenses from PurchasePro during both the fourth quarter of PurchasePro's 2000 fiscal year ("Q4 2000") and the first quarter of its 2001 fiscal year ("Q1 2001"), thereby materially inflating PurchasePro's publicly announced and reported revenues for those quarters. According to the complaint, Anderson also concealed these side agreements from PurchasePro's auditors, and falsely represented to PurchasePro's auditors that there were no such side agreements.

The complaint further charges that Anderson knowingly falsified PurchasePro's accounting books and records and thereby caused PurchasePro to overstate the amount of revenue that was referred to it by its most important strategic partner, America Online, Inc., and that he directed a subordinate to create an inaccurate spreadsheet as support for the inflated AOL referrals. Next, the complaint alleges that, during Q1 2001, Anderson participated in PurchasePro's improper recognition of $3.7 million in revenue from a purported agreement with AOL called a "Statement of Work," which Anderson knew or was reckless in not knowing was improper because, among other things, the parties never reached an agreement with respect to the services at issue and because the services were not performed as stated in the agreement. Finally, the complaint alleges that, during April 2001, Anderson received a $100,000 retention bonus from PurchasePro and requested that his e-mail messages relating to the first week of that month be deleted.

In its complaint against Miller, the Commission alleged that Miller, while serving as PurchasePro's Senior Vice President of Finance and Chief Accounting Officer, knew or was reckless in not knowing that PurchasePro's recognition of revenue from the "Statement of Work" agreement with AOL was improper under GAAP. The complaint further alleges that Miller misled the company's outside auditors in connection with the auditors' review of PurchasePro's financial statements for Q1 2001 by, among other things, failing to provide the auditors with material facts that called into question the authenticity and performance of the "Statement of Work." In addition, the complaint charges Miller with knowingly circumventing PurchasePro's internal accounting controls by, among other things, recording revenue from the "Statement of Work" without adequate documentary support, signing blank checks for use by PurchasePro's former chief executive officer, and causing PurchasePro to pay a higher bonus to the company's then senior vice-president of sales than the company's compensation committee had authorized. According to the complaint, Miller himself received a $100,000 bonus during the same time frame. Finally, the complaint alleges that in February 2003, after being served with an SEC subpoena requiring that he produce documents relevant to the matters described above, Miller withheld, destroyed, and attempted to destroy several documents and electronic files that were subject to the subpoena.

Based on these factual allegations, the Commission charged both Anderson and Miller with violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (the "Exchange Act") and Exchange Act Rules 10b-5 and 13b2-2. The Commission also charged Anderson with violating Exchange Act Rule 13b2-1 and with aiding and abetting PurchasePro's violations of Exchange Act Section 13(a) and Exchange Act Rule 13a-1. Without admitting or denying the Commission's allegations, both Anderson and Miller consented to final judgments that would permanently enjoin them from violating the foregoing securities law provisions, permanently bar them from acting as officers or directors of any public company, and order each of them to disgorge $100,000 in bonuses they received during the period in question (plus prejudgment interest), but waive payment of these amounts based on their sworn representations concerning their financial condition.

In a related matter, the U.S. Department of Justice and the United States Attorney's Office for the Eastern District of Virginia filed criminal charges against both Anderson and Miller. Anderson was charged with conspiracy to commit wire fraud, and Miller was charged with obstruction of justice. The Commission acknowledges the assistance of the Department of Justice, the United States Attorney's Office, and the Federal Bureau of Investigation in the investigation of this matter.